Daily Ticker

Superfail: Why D.C.’s Fiscal Clown Show May Still Yield Results

To the surprise of nobody, the Congressional Supercommittee tasked with coming up with $1.2 trillion in deficit-cutting measures has completely failed.

If the definition of insanity is doing the same thing over and over again and expecting different results, then Washington is officially bonkers. The entirely predictable face-plant of the Supercommittee came on the heels of the highly predictable failure of the Simpson-Bowles Commission and the Obama-Boehner grand bargain talks.

You don't have to have a Ph.d. in political science to grasp the dynamic at work. The White House has a set of preferences, which it has laid out here. But it doesn't spend a lot of time campaigning for them, and it doesn't believe that getting intensely involved in the negotiations will help move the ball. Democrats aren't entirely sure what they want, though they insist any large deficit reduction deal must include significant tax increases, preferably on higher-income earners and companies. Otherwise, they won't consider significant changes in entitlements that their forebears created, like Social Security and Medicare. As for Republicans, there are two things they aren't interested in: (1) raising taxes; and (2) doing a large deal with President Obama that will give him an achievement going into the next election..

Oh, and the overwhelming majority of people who parade around Washington posing as fiscal hawks are frauds. They're the ones who created a tax system that collects revenues that can't fully fund the spending system they also voted to create. And when push comes to shove, those who cry most loudly about the deficit shy away from doing what's necessary. When the Republican presidential candidates all indicated that they'd reject a deficit plan that included 10 dollars of spending cuts for every dollar of tax increases, it was an extremely clear signal that the Republican party as currently constituted isn't interested in a grand deal. Democrats, for their part, figure there's no point in making massive concessions on entitlements if there's no reciprocation on taxes. And for both parties, these postures make complete political sense.

As the Supercommittee met, there simply wasn't any space for a deal. And the Supercommittee's secret weapon turned out to be a dud. In theory, if the Supercommittee failed to come to an agreement, the default position would be automatic cuts of $1.2 trillion split between social spending and defense. The theory was that such reductions would be so odious to both sides that they'd simply have to come to terms. Here, too, the design was flawed. The cuts aren't set to take place until 2013, which lessens the urgency. And this thing called the Constitution allows Congress to change laws through a process called legislation. Even before the Supercommittee failed, there was talk of simply ignoring or overturning the proposed defense cuts.

While the Supercommittee drama played out, Washington continued to stage a theater of the absurd. The House, led by its Republican majority, last week voted on a Balanced Budget Amendment, a change to the Constitution that could finally force fiscal discipline. But Rep. Paul Ryan, the Republicans' lead voice on budget issues, didn't vote for it. Why? He realized that the budget plan he has proposed, the one which his colleagues have adopted as their own and that creates trillions of dollars of new debt, would be unconstitutional under the amendment. Never mind. Almost all the Congressmen who voted for the balanced budget amendment also voted for the Ryan plan.

The silver lining is that this failure is not likely to matter much to the bond and stock markets over the long-term. And it's quite possible our salvation may come from the same set of conditions that has inhibited action.

While the Supercommittee tried to set up a fake trigger for deficit reduction, there are some real triggers out there that have the potential to take a bite out of deficits. If Congress and the White House simply argue, grandstand, and refuse to come to an agreement over the coming year, some $7.1 trillion in deficit reduction could be on the way. This is what Washington Post columnist E.J. Dionne dubbed the do-nothing option. The full details are here. There's $3.3 trillion from letting the Bush-era tax cuts on income, capital gains, and dividends expire at the end of 2012. The alternative minimum tax isn't indexed for inflation. And so each year, it catches more people up in its maw, unless Congress enacts a temporary patch. Simply doing nothing on the AMT would raise $700 billion over the next several years. A law passed in the 1990s cut the reimbursement rate for Medicare providers. But Congress has enacted a series of temporary fixes to forestall the cuts. If Washington locks grids over the issue, Congress would effectively cut $300 billion in spending. And don't forget the $1.2 trillion in automatic cuts that stem from the Supercommittee's failure.

The best chance for doing something about the deficit, in other words, may be to do nothing. And if there's one thing this divided Congress has proven it can do, it's nothing.

Recommended for You

Conventional wisdom dispensed by financial planners about taking Social Security largely boils down to this: Wait as long as you can. Forty-eight percent of women and 42 percent of men who claimed benefits in 2013 did so at 62, which is the most popular age to start getting Social Security. Part of the reason is that, in some circumstances, waiting simply doesn’t make sense, “The decision on when to start Social Security depends on factors such as how long you expect to live, cash flow needs and marital status,” says Daniel Galli, a certified financial planner in Norwell, Massachusetts.

Dec.08 -- Bruin Sports Capital founder and CEO George Pyne discusses TV ratings for National Football League games, slowing growth at ESPN and the new media model for coverage of athletes. He speaks with Scarlet Fu on “What’d You Miss?”

U.S. home values rose again in October, and a handful of states reported increases exceeded the national average. Housing prices increased 6.7 percent in October compared to the same month a year ago, ...

When it comes to interest rate decisions under Reserve Bank of India's new governor, Urjit Patel, the only certainty seems to be that nothing is certain. Both of Patel's policy reviews so far have wrong-footed investors, raising frustration that they are unable to get a handle on where monetary policy is headed in Asia's third-largest economy. Economists and market players point to a significant shift in emphasis between inflation and growth at the two meetings as the main source of confusion, compounded by Patel's reluctance to discuss policy in public or private.

Tag Heuer's renaissance is far from over, its chief executive told Reuters, adding the high-end watch brand still had room to expand in China and other markets after some of the strongest sales growth in the industry this year. LVMH's biggest watch brand in terms of sales has seen revenue growth of more than 10 percent so far in 2016, compared with a drop of more than 10 percent just two years ago, Jean-Claude Biver said in an interview. First hit in 2012 by China's crackdown on gift giving to officials, it then suffered from various market shocks and a tourism slump after militant attacks in Europe in 2015 and 2016.

Dec.08 -- Taiwan is again a potential flashpoint in U.S-China relations, after Donald Trump broke protocol by talking with Taiwanese President Tsai Ing-wen. Taipei is also re-asserting its claim over contested territory in the South China Sea. Bloomberg's Stephen Engle reports from Taiping in the Spratly Islands.

Large banks in Britain want the UK government to allow their industry to remain subject to EU laws for up to five years after Brexit, a move likely to enrage eurosceptics who want to break away from the bloc's legal system as soon as possible. The banks - international players - are also pressing the government to allow the European Court of Justice to rule on decisions related to their businesses during that period, according to a document reviewed by Reuters. The document was drawn up by law firms on behalf of banks lobbying the government for a departure in stages from the EU.

German pilots' union Vereinigung Cockpit said it would resume wage talks with Lufthansa next week and hold back on further strikes during negotiations, offering some pre-Christmas respite to passengers and the airline. Lufthansa and its unions have been embroiled in a row over contracts dating back to 2012, with 15 walkouts since early 2014 costing the carrier hundreds of millions of euros in lost profit. Lufthansa wants to cut staff costs by making pay more flexible and revamping pension schemes.

U.S. wholesale inventories fell as previously reported in October amid a surge in sales, supporting views that inventory investment would provide a modest boost to economic growth in the fourth quarter. The Commerce Department said on Friday that wholesale inventories decreased 0.4 percent after rising 0.1 percent in September. The department reported last month that wholesale inventories declined 0.4 percent in October.

The Senate will take up the repeal of the Affordable Care Act on the first day of the new Congress, Jan. 3, setting up an historic clash between President-elect Donald Trump and his GOP allies and Democrats and an array of health care industry groups over the future of the government health care system. Senate Majority Leader Mitch McConnell (R-KY) announced Tuesday that the Obamacare repeal would be “the first item up in the new year,” after conferring with Vice President-elect Mike Pence and other GOP leaders.

NEW YORK (AP) — U.S. stocks are opening higher Friday morning as major indexes continue to set records. Technology companies are rising on company earnings. Health care and household goods companies also trading higher after lagging the market over the last few weeks.

BRUSSELS (AP) — The European Union is starting legal action against Britain, Germany, Spain and Luxembourg for not imposing penalties against Volkswagen for using illegal software to hide vehicle emissions.